Viacom Reports Higher Quarterly Earnings, Flat U.S. Ad Revenue

Viacom, led by CEO Bob Bakish, on Thursday reported higher fiscal fourth-quarter earnings and said it continues to work on turning around its business.

The entertainment conglomerate, controlled by the Redstone family, reported adjusted earnings from continuing operations of $310 million, or 77 cents per share, for the latest quarter, compared with $273 million, or 69 cents per share, in the year-ago period. The adjusted figures exclude a year-ago $206 million restructuring and programming charge.

Wall Street had on average forecast 86 cents per share in quarterly earnings, but that excluded the impact from the collapse of a planned slate financing deal, which the company recently said would affect its earnings in the quarter. One Wall Street observer said that made it difficult to compare the reported figures with the earnings consensus estimate.

In Viacom's earnings report early on Thursday, which marks a year and day from when Bakish was made acting president and CEO, the company also reported a 3 percent revenue gain to $3.3 billion for the latest quarter.

Viacom's stock was up slightly in pre-market trading.

For the final quarter of its fiscal year, Viacom posted, as forecast, higher advertising revenue at its media networks unit and a drop in U.S. affiliate revenue amid continued pay TV subscriber declines. Worldwide ad revenue rose in the latest quarter, with U.S. ad revenue unchanged amid recent positive ratings trends after U.S. ad declines in recent quarters.

Overall, media networks unit quarterly revenue rose 3 percent to $2.6 billion, driven by a 6 percent advertising revenue gain, led by a 36 percent jump in the international business, thanks to the acquisition of Telefe in Argentina and growth in Europe. Affiliate revenue fell 1 percent as a decline in subscribers in the U.S. and lower SVOD revenue was partially offset by rate increases and growth in the international business.

Viacom's cable networks business has seen audience improvements, with total ratings up 3 percent in the most recent quarter, including 27 percent growth at BET, where the miniseries New Edition was a success, and 11 percent at MTV.

Adjusted operating income for the media networks unit declined 8 percent to $693 million, "primarily reflecting increases in programming expenses," the company said.

Film unit revenue rose 2 percent to $789 million in the latest quarter, "driven by growth in licensing revenues partially offset by lower theatrical revenues." Theatrical revenue was down 43 percent due to the strong performance last year of Star Trek Beyond, while home entertainment revenue fell 5 percent. But licensing revenue grew 30 percent thanks to higher film licensing revenue and Paramount Television productions.

The film unit's financial performance in the quarter was affected by a lack of new films. "This was a weak quarter at the box office, with only one new release (mother!) that earned a rare 'F' grade on CinemaScore with an abysmal $7.5 million opening weekend," wrote Sanford C. Bernstein analyst Todd Juenger. "Total gross reached $16 million through the end of the quarter, but remains far short of the estimated $33 million budget, and a write-down seems inevitable."

Overall, the film unit posted a quarterly adjusted operating loss of $43 million, an improvement of 69 percent over the prior-year quarter's loss.

One key factor in Thursday's results was Viacom's recently announced termination of its film slate financing deal with Chinese firm Huahua, which it said would have a negative impact of $59 million in the latest quarter related to funds not received this year. It didn't detail how much that would hit earnings per share. Paramount said it would fill the gap left by Huahua with partners including David Elison's Skydance Media, Hasbro and SEGA, which the studio says will cover financing for its 2018 and 2019 event films.

"In the fourth quarter and full year, we made strong progress against our plan to fundamentally stabilize and revitalize Viacom, with top line gains in both media networks and filmed entertainment segments driven by continued execution on our strategic priorities," Bakish said. "We saw significant ratings increases across the portfolio, which drove sequential improvement in domestic advertising; our international business continues to expand, delivering double-digit revenue increases; and Paramount is demonstrating growth across multiple revenue streams as it rebuilds the theatrical slate and continues to grow its TV production business."

The CEO continued: "Viacom is stronger and our momentum continues to build. To accelerate our transition to long-term, sustainable growth, we are ramping up the evolution of Viacom's media business to better serve next generation platforms and solutions while continuing to diversify our business and strengthen our global portfolio of flagship brands. In the coming year, we will continue to focus on unleashing the full creativity and energy of Viacom to create greater value for our shareholders and audiences."

Ratings trends along with the planned turnaround at Paramount and the film financing arrangements are expected to get mentioned on the earnings call later Thursday morning along with possible comments on a recent carriage deal with Charter Communications.

Bakish is on the call also likely to discuss the launch this week of online entertainment channels bundle Philo. Viacom management has long predicted such a low-priced, no-sports entertainment bundle featuring its networks. Philo, which launched Tuesday, is offering a bundle of 37 entertainment-only channels for $16 a month, including MTV, VH1, AMC, BBC America, Comedy Central, HGTV and History. For $20 per month, subscribers can get nine additional channels, including Logo and Nicktoons.